5 asssignments 3rd week

Business Cycle are “the periodic increases and decreases in overall economic activity reflected in production, employment, profits, and prices” (Farnham, 2014, p. 297). The rising phase is called expansion and the falling phase is called recession. Based on the above information, I would believe that the country is in the recovery cycle. In the recovery cycle, the economy begins to recover from the falling phase. Employment and production begin to slowly rise. I believe that we are currently in the recovery phase because of a slow group in many districts although total spending is still low. There are many strong industries such as residential real estate and residential constructions. With the introduction of the vaccine, more businesses have reopened since the initial closure in 2020 which has enabled them to begin the rebuilding process albeit slowly. Another sign that we have entered the recovery phase is that employment has increased, and unemployment has decreased. There are industries that have rebounded stronger such as manufacturing while other industries are slower to rebound such as service industries (Federal Reserve District). Aggregate supply refers to the total amount of output or product a firm will make and sell and aggregate demand is the amount of money that is being spent on goods and services (Farnham, 2014, p. 389). The supply model shows the total supply available and demand present for the economy. Aggregate demand-aggregate supply equilibrium is the level of income and output are equal or where the two curves intersect (Farnham, 2014, p. 397). Right now, I believe that aggregate demand is higher than aggregate supply. The output has not been able to keep up with the increase of demand for certain goods such as lumber. The price pressure noted above is pertaining to both demand and supply driven. During COVID, there were many disruptions in the supply chain due to shut downs in productions in an effort to reduce the spread of the virus. The shut down cause the supply inventory to decrease. The demand for the product surged in certain areas such as lumber and PPE which contributed to the price pressures. The housing markets remained strong during the global pandemic due to decrease in supply and decrease in interest rates (Springfield, 2021). While people are staying at home, they are more dependent on their 4 walls more than ever. Fewer homes were being put for sale due to the necessity of their shelter during this time. The prospective buyers did not decrease with the supply. They continued to search for a home. During the pandemic, home interest rates also sharply declined. This makes it more feasible for some potential buyers to start searching more vigorously. The decline in interest rates made it more attractive to renters that are looking to buy their first home. ==================================================================================== Based on the above information from the Federal Reserve, explain where you believe the country is at this point in the Business Cycle – peak, recession, trough, or recovery. Explain your rationale for such a description. I believe we are in the oddest recovery the world has ever seen. Many of the traditional indicators show we are in a recovery mode, transportation, distribution, manufacturing, auto sales and residential builders. The confusing part of the recovery is that the service industry was nearly destroyed during the pandemic, and it too is starting to bounce back. The one point that should be mentioned is that the recovery is geographically specific, some states are doing better than others. In Northern Indiana there are signs out at nearly every business trying to attract employees, usually lower-level entry positions, several fast-food restaurants are keeping lobbies closed due to worker shortages. The shortage in workers is causing an increase in employee wages. Relative to the Aggregate Supply and Demand Model for the US, explain in your own words where you believe aggregate supply and aggregate demand are relative to a desired “equilibrium” for the economy. The supply of certain items is below equilibrium significantly, construction products, employees etc. Yes, I view employees as a supply issue. Demand is significantly high for products, the same things that there is a low supply for. There are always winners and losers when the economy changes, the pandemic has made all things related to being at home winners. My wife has been trying to buy some nicer lawn furniture for our pier and has been told it is a twelve week wait for the poly furniture she wants, and it cost more. The fact that a simple item like a chair is being sold out demonstrates clearly that the supply is lower than the demand. Supply will catch up and demand will slow down, but nobody knows where the new equilibrium will be. Equilibrium is the state of the economy where supply equals demand and determines the price of a product or service (Funk & Wagnalls, 2018). What might explain some of the “price pressure” alluded to in the Federal Reserve information. Is it demand driven, supply-driven, or both? Both supply and demand are responsible for the price pressure that has been happening in the economy. There has been a shift in the supply curve and the demand curve, and both shifts support higher pricing. The government giving large sums of money to businesses and individuals has spurred an increase in demand, while closing, employee shortages along with material shortages has slowed supply. The Federal Reserve’s narrative hints at a strong housing market, and consequently, much higher lumber prices. Research some credible sites to glean why the housing market could be so strong in the midst of a pandemic and explain with sound narrative. The pandemic is by all definitions a disaster. Disasters create winners and losers in the economy (Xiao, & Nilawar, 2013, pp 647). After hurricane Katrina the prices of lumber spiked because of the increased demand for building materials needed to make the repairs (Xiao, & Nilawar, 2013, pp 649). The pandemic has caused an increase in demand because the public was required to stay at home and not go out or go on vacation. People staying at home saving money added to the stimulus checks created a demand for at home projects, this was often home improvements or building structures. At the same time the demand was increased, supply was decreased by labor and manufacturing shortages.